Paycheck Politics: Democrats Worry the IRS Will Game the New Tax Tables

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Public perception of the Republican tax overhaul could be determined in part by what Americans see in their paychecks as soon as next month. The election-year stakes are high — and they’ve put the IRS and its implementation of the new tax law in the political spotlight.

As the Trump administration looks to quickly deliver on the Republican promise of higher take-home pay, the agency, which isn’t supposed to play politics, is “under pressure to take as little as possible so people will see big increases in their take-home pay,” Politico’s Brian Faler reports. The IRS said on December 26 that it expects to issue initial withholding guidance this month and would encourage payroll providers to implement the new tables in February.

That approach prioritizes “speed over accuracy,” The Washington Post’s Damian Paletta reports. The new IRS guidelines will still have companies and payroll administrators working with existing W-4 forms that don’t reflect the new tax changes in figuring out how much income to set aside. The resulting calculations will be complicated, “and the uncertainty could mean workers severely underpaying or overpaying their taxes by thousands of dollars in 2018 — something that will likely remain unknown until they file their tax returns next year,” Paletta writes.

The administration and the IRS could have opted for a different process that would have resulted in more accurate withholding, Paletta adds, but “that process could have taken months, likely delaying any benefit from the tax cuts until much later in 2018.”

Democrats this week also expressed concern that the new IRS withholding guidelines could be subject to political interference. In a letter to acting IRS Commissioner David Kautter on Monday, Sen. Ron Wyden and Rep. Richard Neal, the ranking Democrats on congressional tax-writing committees, cautioned that the Trump administration may try to give taxpayers “phantom windfalls” in 2018 that result in larger tax bills or smaller-than-expected refunds in 2019. (Americans apparently really like getting tax refunds, even if it essentially means they’ve given the government an interest-free loan.)

“Given that the IRS does not have an independent, nonpolitical Commissioner, we are concerned that the Department of Treasury, which oversees the formulation of these tables, may unduly influence the new withholding tables for the 2018 tax year in a manner that will result in millions of taxpayers receiving larger after-tax paychecks this election year but ultimately owing federal income tax when they file in 2019,” the Democrats wrote. In addition to being the acting head of the IRS, Kautter is also the Treasury Department’s assistant secretary for tax policy.

The two Democrats also said they asked the Government Accountability Office to determine whether the new IRS tables call for enough withholding to prevent taxpayers from being surprised at tax time next year.

House Ways and Means Chairman Kevin Brady (R-TX) told Politico: “There’s never been any question about the IRS’ timely, accurate withholding tables, nor should there be today.”

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As editor in chief, Yuval Rosenberg oversees all aspects of The Fiscal Times' website and email newsletter. His writing has appeared in publications including BusinessWeek, CNBC.com, CNNMoney.com, Fast Company, Fortune, Newsweek, Money and Time.